Market Overview

22 November 2022

Europe’s Rising Inflation Manages to Sober Up Markets Again

Inflation data for the leading developed countries continues to guide investors’ sentiment as this information is considered to be a key indication for central banks in term of how they may adjust their monetary policies. The Producer Price Index (PPI) in the United States slowed down to 8% year-on-year in October against 8.4% a month before. This data contributed to the enthusiasm already established by the sensationally lower Consumer Price Index (CPI) at 7.7% for the previous month.

However, the joy was short lived as European prices continue to post records. Consumer prices in the United Kingdom jumped to 11.1% year-on-year in October vs 10.1% in September and prices in the Eurozone accelerated to 10.6% from 9.9%. This could be considered as e a kind of guiding light for the Bank of England (BoE) and the European Central Bank (ECB) to raise interest rates, and if this is the case it could eventually lead to a stronger Pound and Euro. But this is not the case as inflation is way too high to be neutralised by interest rate hikes without damaging the economy. The British Finance minister Jeremy Hunt acknowledged that the UK economy has been hit by a recession and that if interest rates are hiked it would only amplify the current economic state. So, any further monetary tightening by the BoE or the ECB would most probably support the rival U.S. Dollar as a safe haven asset even though a recession in the U.S. is also expected. Whatever the case, even if the rate at which the interest rate is hiked in the U.S. does slow down, it is still expected to be higher than that in Europe. Members of the Federal Reserve (Fed) James Bullard, Mary Daly, and Esther George have supported the Greenback by delivering hawkish comments about monetary policy perspectives.

This has also provided support to U.S. Treasuries as the ten-year bonds yields climbed to 3.79% from last week’s 3.67%.

Most investors probably realise that the real disaster is still ahead. So, the forecast of selling risky assets and opening positions in favour of the U.S. Dollar may be considered justified. The nearest technical targets may be depicted at 3910 points for S&P 500 index, 108 points – for DXY, 1.0210 – for EUR/USD, 1.1620 – for GBP/USD and 141.70 for USD/JPY remain intact.

Even though the S&P 500 index dived to 3910 points over the last couple of days it may slightly rebound to fall back to this level and continue further down to 3800 points. The U.S. Dollar index (DXY) jumped from 106.2 points to 107.9 on November 21. The hammer candlestick reversal pattern with the low at 104.4 has emerged for the DXY index on the weekly chart. So, the forecast of the DXY climbing to 108 points may be considered. The next upside target may be spotted at 110 points.

EUR/USD has declined to 1.0223 as expected with the “falling star” pattern on the chart that may flag a further downside to 1.0180. USD/JPY declined slightly to 141.7 and may resume its way up to the next target at 143. The British Pound has charted a “falling star” too, reversing at 1.1860. The nearest target at 1.16 is intact.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.94% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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